Wages Too Soon to Ponder

To any one person that has paid attention to Ethiopia’s economy, what is immediately apparent is that exploitive wages to employees – at the risk of sounding perverse – is one of the strengths of the economy. The state of Ethiopia’s labour force, not the fact that it is unproductive, but that employers could get away with paying one of the most minimal wages in all of Earth, has been the soundest means of developing the economy.

The International Trade Unions Confederation (ITUC) believes that this has got to change though. They denounced the low wages paid to workers in the manufacturing sector, and that a minimum wage should be installed.

It would be insensitive not to agree that the salaries are too low for it is not uncommon to hear of below a 1000 Br monthly salary for manual workers (the amount is close to the minimum wage for two hours in Australia). But it would be unreasonable to believe that the remedy is setting a minimum wage. Ethiopia cannot sustain what would be, for all intents and purpose, too much of an indulgence for its economy.

Notwithstanding what almost every institution seems to be projecting – the sustainability of growth, despite some estimates of a contraction in the gross domestic product (GDP) that will still see Ethiopia beating its African counterparts – the Economy is not in tip-top condition. Consumers are suffering from inflation, and forex is at its crunchiest.

Add to these headaches weak tax revenues, surging illicit financial outflow, and a trade deficit, and it makes one wonder where all of that growth is, in fact, coming from.

Perhaps, for that, the government has to thank foreign direct investment (FDI) (and let us not forget remittances). Government estimates point to a 3.8 billion dollar worth of FDI flow into Ethiopia in the past fiscal year, with the International Monetary Fund (IMF) adding that it has grown by 27.6pc.

At first glance, this may make little sense. Given the sporadic unrests that have been erupting all over the country, especially in the Oromia and Amhara regional states in the past few years and the damage to property this has incurred, one would think it would give investors food for thought.

Add to that the lack of adequate telecom, transport and power infrastructure, and bad logistics services, then it should have been a part of the economy that even the massive investments and promotion undertaken by the government could not have invigorated.

But Ethiopia has had a great tool here, which is the low-skilled labour force. If investors do not think that there is a dynamic business environment, then at least they will find an excellent opportunity for cost reduction, which makes up for other bottlenecks.

Such a theory is of course not one that Ethiopia’s Confederation of Ethiopian Trade Unions (CETU) agrees with. Its head, Kassahun Follo, likewise argued in an interview with this paper.

Asked whether a minimum wage would drive investors away, he would answer that, “foreign investors do not come to Ethiopia with the intention of hiring a lot of people and throwing money around.”

Indeed, they do not. They come here to throw as little money around as possible by hiring as few people as they can manage. And it would go against their business model of increasing their profit margins by reducing their costs if the Ethiopian government was to introduce a minimum wage.

There are no two ways about this. The one prime opportunity the nation can offer investors is low-cost labour, and taking that away will only have negative consequences. It will just drive investment elsewhere, and exasperate unemployment in the country.

The introduction of a minimum wage is an argument more fitting in a time when the country has built up its human capital. Imagine there was more skilled workforce in Ethiopia that could offer employers its talent and innovativeness rather than its resignation to meagre wages. Imagine a workforce that is productive, especially in the service sector, and is competitive both locally and globally.

It will mean quality services and goods that will help the economy grow by leaps and bounds. Ethiopia, when it comes to its human capital, has the quantity side covered – what remains is the quality side.

This does not mean the government should fail to ensure that its people are treated fairly. It has the responsibility to ascertain that labour laws in the industrial parks and manufacturing plants across the country are not violated. But dictating the salary packages workers agree to will hurt that very same group.

Instead, the second an investor comes to Ethiopia claiming that he did as such to harness the nation’s skilled labour, sound infrastructure facilities, smooth and flexible provision of services by public institutions and sleek logistics, then we should restart the conversation about minimum wages.

By Christian TesfayeChristian Tesfaye (christian.tesfaye@addisfortune.net) is Fortune's Op-Ed Editor whose interests run amok in both directions of print and audiovisual storytelling.